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Wednesday, June 22, 2011

Money Questions? Gold, Silver, and U.S Dollar

History of Gold, Silver, and U.S Dollar as Money

What is money? Why does money exist and how did the banking system come about? Money is in everyone's life some people have more than others. The public is generally unaware how currency came into being. Decides paper money, gold, and silver have been used as money as well. Going back in history, to understand how gold and silver was used as money, then also, to understand how paper money was develop in the United States.

The American Dream

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People have been using gold to make jewelry since the Stone Age, about 50,000 BC. The first gold coins were produced in 700 BC, since then the precious metal has been used as the primary exchange element. The Egyptians considered gold to be a perfect metal, and gave it the symbol of a circle. (Dr. Karen Carr, 2011) The fact that gold was scarce and highly valued made it the perfect means of exchange, regardless of what the exchanged items were.

People first mined silver in the Bronze Age, around 1600 BC. The big problem was, silver ore (the rocks that had silver in them) generally contained some lead in it. But lead is very poisonous, so the men who did the mining for the silver were also being poisoned by the lead. Man learned to separate silver from lead as early as 3,000 B.C. Silver has been mined and prized for its beauty and durability for at least 6,000 years. (Dr. Karen Carr, 2011). Silver is the best conductor of heat of all elements and it used in solar panels. A small concentration of silver or silver salts kills bacteria by chemically affecting the cell membranes, causing them to break down. Bacteria do not develop resistance to silver, as they do too many antibiotics. Silver compounds were successfully used in World War I to prevent infection before the advection of antibiotics. (Silver Users Association Inc., 2010) History shows that silver has been used in more places and for longer periods of time for money than gold. (Lockyer, 1898).

The process of turning physical gold and silver into money began when goldsmiths, who used to store gold for other society members for a fee, started to issue receipts for their storage. The receipts idea spread quickly as it was more convenient than carrying the actual metal with them, so people began to get accustomed to the idea of paper money. Goldsmiths gradually turned into bankers and the currency evolutionary process continued developing. (Prialde, 2005).

The Constitution states that our currency was meant to be only gold and silver. On April 2, 1792, the Coinage Act was passed establishing the United States Mint. (Sound Currency Committee, 1894). From 1837-1862 there was a system of national banks in the USA but, then in 1913-1914 a consortium of 12 privately held banks got together and formed the Federal Reserve Bank. (National Inflation Association, 2011). Congress created the Federal Reserve Act on December 23, 1913, with the signing of the Federal Reserve Act by President Woodrow Wilson. The Federal Reserve System includes the Board of Governors and the twelve regional Reserve Banks. (Federal Reserve Broad, 2010). The United States worked directly with a gold standard for its currency until 1933. As President Roosevelt worked to strengthen a beaten-down U.S. economy after the 1929 market crash, he made sure that the government would no longer have a run on the gold it kept. (Martenson, 2011). This direction was enforced by stopping civilians from changing their currency back to gold. In the year, 1970s when President Nixon halted foreign governments from being able to convert U.S. dollars to gold. In doing so, foreign countries were then forced to recognize and value the U.S. dollar as a paper asset only rather than one that could be changed to gold. Both of these moves boosted the amount of U.S. currency supply, but they also devalued the U.S. dollar over time. (Lutzenberger, 2010).

Only after the Federal Reserve took hold in 1913 did we see a steady decline of the purchasing power of the dollar. (Hewitt, Januray 7 2009) The dollar has lost 97 percent of its value since 1913 when the Federal Reserve was created. Out of control inflation has been with us for almost 100 years. (National Inflation Association, 2011). Looking at purchasing power of a dollar in 1800 and one in 1900 people will see that it was relatively stable over time. US dollars have lost approximately 84 percent of their purchasing power since 1970. (See: Chart 1A). For example: In 1913 - One dollar bought individuals 20 loaves of bread and in 2010 that same dollar bought individuals 3/4 of a loaf of bread. Now, a gram of gold in 1913 bought individuals 13 loaves of bread and in 2010 the same gram of gold bought individuals 31 loaves of bread. (KB Vision , 2011).

Chart 1A

The paper and digital currency that bankers create out of thin air is backed by nothing. The more paper "dollars" they roll off the printing presses or digital "dollars" created by computers, the less each one is worth. Therefore, it takes more of them to buy the things people need, so the price of everything has to go up and up and up in endless inflation. The Federal Reserve is not a government agency, but a private, for-profit Corporation. The Federal Reserve does not bother to tell people that they do not create enough paper/digital currency to pay off the debt plus interest so mathematically the economy will eventually collapse as has always occurred in history with paper currencies. (National Inflation Association, 2011). In other words, the people write a check, there must be sufficient funds in their account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn.

After looking at history of Gold, Silver, and U.S Dollar what is seen is: The US dollars have lost approximately 84 percent of their purchasing power since 1970. Paper money is a product manufactured by human hands, which can be replaced at any time. Gold was once an important currency metal but has lost this function since 1970's. This has been a fact since well before the introduction of paper banknotes. Utah took its first step to bringing back the gold and silver standard. The State House passed a bill that would recognize gold and silver coins issued by the Federal Government as legal currency. (Dinan, 2011). Silver has been used as money and have other uses as well.